After a lull of about one and half years, the Indian cement industry is once again seeing action on the mergers and acquisitions (M&A) front. Interestingly, despite an oversupply threatening the cement industry and fears of the worst yet to come, valuations have not dipped in the sector. Banking sources say, sellers are demanding an enterprise value (EV) per tonne of about US$200 -250, due to which many domestic players have backed out of potential deals. Foreign players eyeing the Indian cement market, however, are negotiating to grab a share of the pie in the sector, where the long-term growth story is intact.
 
For instance, Hyderabad-based Penna Cement is on a hunt for a strategic partner and Mexico’s Cemex is believed to be eyeing a stake in the company. “Penna is understood to be looking at an EV of US$150/t, which only a foreign player would agree. Negotiations are going on,” said a banker, on conditions anonymity.
 
Similarly, little known Nagpur headquartered Murli Cement, which started production of its 3Mta cement plant in Chandrapur in April 2010, is also on a hunt for a buyer. If reports are to be believed, global cement majors including HeidelbergCement, Lafarge, Italcementi and CRH are in talks to acquire the company. The promoters are expecting close to US$200/t. The bids are understood to be in the range of US$160-180m/t. The deal, if done at this price, would be very expensive, say experts.
 
“In India, a number of opportunities are available in the Southern market, but the valuations quoted are high, and only foreign players are willing to pay such a high price,” said a Mumbai based analyst.
In April 2010, French cement maker Vicat SA bought a 51% stake in Hyderabad’s Bharathi Cement Corp. Ltd, promoted by YS Jagan Mohan Reddy. The deal price was, however, not disclosed but industry sources say it was at an enterprise value (EV)/tonne of about US$135-140/t, higher than the replacement cost (US$90-100/t).
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